Don’t Confuse Overhead with Fraud

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Yesterday’s morning paper greeted me with a big headline about charity fraud. The Federal Trade Commission has filed a complaint against three national charities. I am pleased that action is being taken against charities who claim to make a difference in people’s lives but don’t. However, I fear that a national conversation will lead to confusion between overhead expenses and fraud.

If you missed the story here it is: Tampa Bay Times 
It was also on TV: CNN 

What are fraud and overhead? I like to start in the dictionary. Here’s how Dictionary.com defines them:
fraud – deceit, trickery, sharp practice, or breach of confidence, perpetrated for profit or to gain some unfair or dishonest advantage
overhead – the general, fixed cost of running a business, as rent, lighting, and heating expenses, which cannot be charged or attributed to a specific product or part of the work operation.

The charities in question claim that their high expenses are overhead. Charities need overhead, “fixed cost of running a business,” to operate. Staff must be paid. Buildings must be repaired. Fundraising activities must be conducted. I would urge everyone – nonprofit employees and board members, individual and institutional donors, regulators – to not confuse legitimate overhead expenses with the fraudulent practices at corrupt nonprofits.

As a career fundraiser, I am very aware that fundraising expenses are often maligned in these conversations. Many people say they want all of their donations to go directly to program support. That is not realistic. What if everyone said that? Nonprofits would not be able to operate without someone supporting the overhead expenses, including ethical fundraising activities.

In a written response to the action of the Federal Trade Commission against the three national charities, Association of Fundraising Professionals (AFP) President and CEO Andrew Watt stated, “These kinds of fraudulent organizations are not charities in any sense of the word, nor do they in any way represent the vast majority of charities that work tirelessly on a wide variety of causes.” I am a member of AFP and proudly adhere to the Code of Ethical Principles and Standards.

When making decisions about where to make a charitable gift, do your due diligence. Make sure that the organization is providing the program support it claims. But don’t make the mistake of thinking that any amount spent on overhead is bad. Those overhead expenses keep your favorite nonprofit operating and thriving. If you have questions about an organization, do some research before you give. There are resources online to help. The best way to learn more about a charity is to get involved – volunteer, take a tour, ask how you can best help.

Don’t let yesterday’s news deter the work of your nonprofit or your charitable giving. Never confuse fraud with overhead.

If you are interested in learning more about the Overhead Myth, check out these resources:
The Overhead Myth 
“The Way We Think About Charity Is Dead Wrong” a TED Talk by Dan Pallotta

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